Why the September Jobs Report Is So Brutal

Employers continue to slash their payrolls.

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Employers in the United States continue to be more interested in cutting their payrolls than in keeping their existing employees, let alone adding new ones. Employers slashed another 263,000 jobs last month, the Labor Department reported today. That brings nonfarm employment down to the level of 2004, when there were about 7 million fewer U.S. workers.

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Workers are dropping out: The unemployment rate edged up only slightly, to 9.8 percent, but the number of workers in the labor force fell by 571,000, suggesting the unemployment rate could have been much worse. The ranks of the marginally attached—workers who have dropped out of the workforce because they believe they won't find jobs or because they have other responsibilities, such as school—have grown by 615,000 over the year.

There are not enough jobs: A bill that would provide another 13 weeks of federally funded unemployment benefits to hard-hit states sailed through the House last week but may be complicated by some senators' efforts to get benefit extensions for all states. In some states, eligible workers have already received as many as 79 weeks of benefits. Historically, spells of unemployment that lasted a year or more were very rare, says Harvard economist Lawrence Katz, a Harvard economist. These trends are the sorts that haven't been seen since the Great Depression.

Indeed, the number of workers who have been unemployed for 27 weeks or more—called "long-term unemployed"—rose by 450,000, to 5.4 million. Last month, 36 percent of the unemployed had been out of work for at least six months. The unemployed face a market in which job seekers outnumber job openings by a ratio of 6 to 1.

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Governments are now feeling the heat: While most other industries slashed jobs throughout the recession, the government sector held up pretty well, helping cushion capital cities from the roughest economic patches. Last month, however, strains on local governments started to show. Government employment fell by 53,000, with the largest drop—24,000 jobs—in the noneducation component of local governments.

Progress has slowed: September job losses were much worse than most economists expected—the median estimate was a loss of 175,000. The government also revised the prior data to show 201,000 jobs were lost in August, rather than the 216,000 originally reported, meaning the trend of narrowing job losses really shifted last month. "Today's report suggests that the progress toward a recovery in labor market conditions has stalled," Ted Weiseman and David Greenlaw, economists at Morgan Stanley, said in a morning note. "We continue to expect to see some eventual follow through on the hiring side, given the recent improvement in production and demand, but the September data reinforce the fact that some important headwinds remain."

Hours fell back down: Along with payroll cuts, many employers have slashed their workers' hours to help lower expenses, and there are now 9.2 million "involuntary" part-time workers (those who would prefer full-time work). The average workweek edged up in August, but September erased the gain, and the workweek is again at a record low 33.0 hours.

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Construction and manufacturing are still hurting: Since the start of the recession, 1.5 million jobs have been erased in the construction industry. Employers in construction slashed 64,000 jobs last month, which, at least, was fewer than they were cutting late last year and earlier this year. The pain was greatest in nonresidential components, where 39,000 jobs were cut. Manufacturing lost 51,000 jobs. That's also fewer than were being cut earlier in the recession, but manufacturing payrolls have shrunk by 2.1 million since the start of the downturn.

The future is unclear: One of the most difficult things to understand about September's jobs report is how far the job market reality was from the government's stimulus forecast. The White House estimated that with the stimulus, the unemployment rate would peak at 8 percent. Without a clear plan to stimulate future job growth, it's unclear how long it will take for the 15.1 million unemployed to gain re-employment in any significant volume. Employers tend to shy away from the risk of new hires until they are confident of the state of the economy. Even for the long-term unemployed, "when the economy is chugging along, firms are willing to take a chance" on hiring and training, says Katz.